Wells Fargo reports $4.6b of net income

Chicago (Reuters): Wells Fargo & Company (WFC) reported $4.6 billion of net income in the third quarter of 2017 (3Q17) for a reported return on assets (ROA) of 0.94%, its first time dipping below the $5b a quarter in net income since 3Q12, according to Fitch Ratings. Reported quarterly earnings were mainly impacted by $1b discrete litigation accrual and the absence of any benefit from reserve releases, which totalled $100 million last quarter. Excluding this litigation accrual, which was related to pre-crisis mortgage-related regulatory matters, Fitch calculated a quarterly ROA of approximately 1.17% and return on equity (ROE) of 11.2%, which are line with our expectations for near-term earnings performance. Both ROA and ROE stand at the lower end of WFC's internally targeted ranges of 1.10% to 1.40% and 11% to 14%, respectively. Last week, Fitch downgraded WFC's ratings reflecting our view of WFC's earnings profile, risk controls, and governance. Historically, WFC's above peer level ratings were primarily supported by its superior earnings profile and a risk management.

 infrastructure that was viewed favorably, and steered the company well through the financial crisis.

Nonetheless, Fitch does not believe WFC's earnings profile will exceed peer levels to the same degree it has in the past, and the agency acknowledges several notable missteps in WFC's risk controls and governance infrastructure that warranted the ratings downgrade. At WFC's new ratings levels, it remains one of the highest rated banks in the world, supported by its solid franchise, capital and liquidity profiles.

WFC's net interest income was flat from the prior quarter, but up 4% from a year-ago, reflecting the benefit from higher short-term interest rates and growth in earning assets. The net interest margin (NIM) contracted 3 basis points (bps) during the quarter to 2.87% due to lower portfolio investment yields and loan balances, and growth in average deposits. Interest-bearing deposit costs increased by 8bps during the quarter to 37bps reflecting continued increases in corporate deposit pricing, as well as movement in wealth management deposit pricing. WFC's retail deposit beta remains very low, but management indicated the realized beta in wealth and investment management is now around 30% to 35% and around 66% in wholesale segment. The NIM is also impacted by a greater proportion of long-term debt than in the past.

WFC's loan growth remained muted, as average loan balances were down slightly on a linked-quarter basis and from a year ago. Commercial loans declined on both lower CRE and C&I loans on a linked-quarter basis. This was partially offset by a modest increase in residential mortgages and credit cards. The company continues to note that the decline in auto loan originations has been largely due to its tightening of underwriting standards, which Fitch views favorably. WFC also indicated that while personal loan growth may have been impacted by sales practices given less referrals, the company estimates there has not been a material impact in wholesale or wealth and investment management loan growth as a result of sales practices issues.

Noninterest income declined 2% on a linked quarter basis and 9% from a year ago primarily due to lower mortgage banking income on both lower servicing income and lower gains on mortgage originations and sales. While the production margin was stable at 1.24% and originations increased 5%, applications declined 12% linked-quarter and the pipeline also fell by 15% on a sequential basis.

Linked-quarter noninterest income comparisons also include last quarters' $309 million gain on the sale of a Pick-a-Pay purchase credit impaired loan portfolio and hedge-related items. Net hedge ineffectiveness resulted in a $93 million gain in 3Q17 compared to a $21 million gain in 2Q17. This hedge ineffectiveness arises from WFC's practice of routinely swapping its fixed rate long-term debt into floating rate debt and swapping its foreign currency-denominated debt into U.S. dollar-denominated debt.

Excluding the $309 million gain on the loan portfolio sale and the higher hedge ineffectiveness gains, noninterest income was essentially flat from the prior quarter. Market-sensitive revenues which includes trading activity, gains and losses on debt and equity investments, increased 19% on a sequential basis. This was offset by the aforementioned decline in mortgage revenues, combined with broad-based declines in many categories.

Quarterly noninterest expenses increased 6% from the prior quarter due to the previously-mentioned litigation accrual. Excluding this, expenses were down approximately 1%, on lower third party services, lower employee benefits expenses, and last quarter's donation to the Wells Fargo Foundation. Sales-practices related spend was roughly $80 million in 3Q17, down from $110 million last quarter.

Internet beneficial to take business overseas

London (AFP): Michelle Thorp, Managing Director for Global Transformation at UK Trade & Investment (UKTI), knows a thing or two about the importance of digital.  She discussed how beneficial the internet can be when looking to take your business overseas. She took a year out of her civil service career to live in Russia. She spent some of that time in Moscow working for a small UK firm that was trying to introduce British sausages to the Russian market. This is where she learned the frustrations and complications of introducing a foreign product into a market. “I know what it’s like for a small business,” she says. “I know what it feels like if your visa runs out, or how difficult it can be to hire local staff and keep them motivated.” Obstructions and difficulties like these are what led to the launch of great.gov.uk, the government’s comprehensive guide to exporting. The website was developed under Michelle's guidance, and it’s something she’s particularly proud of. By searching the website, business owners can scan potential distributors and stockists, from Amazon to Zalora.

 (an Asian fashion site), to see which marketplaces allow vendors to sell products abroad. “This is my favourite bit of the whole website,” admits Michelle. “We know there are loads of businesses in the UK that could sell online overseas, but they just don’t know where to start. That’s why we’ve done some of the hard work for them.”

 Coordinated Care Corp fined $1.5m

Washington (AFP): Coordinated Care Corp. has agreed to a consent order detailing steps it must take to fix its provider network deficiencies and other ongoing issues. The company was fined $1.5 million with $1 million suspended, pending no further violations over the next two years. Insurance Commissioner Mike Kreidler issued a cease and desist order Dec. 12 ordering the company to stop selling individual health plans in Washington state because it failed to maintain an adequate network of medical providers. In particular, Coordinated Care admitted to not having enough anesthesiologists in King, Snohomish, Pierce and Spokane counties. According to the company’s own data, its provider network is also seriously deficient in other categories of providers, including immunology, dermatology, and rheumatology. With the consent order in place, the order instructing the company to stop all sales is canceled. Anyone who bought Coordinated Care plans through Washington state’s Exchange after Dec. 12 will have those policies in effect for 2018.

Kreidler’s office received more than 140 complaints from Coordinated Care enrollees this year who have had difficulty with their coverage. This included accessing in-network providers and receiving surprise medical bills.

All health insurers are required to monitor their provider networks and identify problems and report them to the insurance commissioner’s office, including how consumers can access those services.

In investigating the consumer complaints, Kreidler’s office has worked with Coordinated Care since mid-May and instructed the company to correct its network and ensure that people are not wrongly charged for covered services.

 Thar coal to turn Tharparkar into

developed district: Dr Ishrat Hussain

HYDERABAD, Dec 24 (APP):Former Governor State Bank of Pakistan (SBP) and eminent economist Dr. Ishrat Husain has said that Thar Coal projects will turn the underdeveloped district of Tharparkar into a developed region. “The Pakistan government and other corporate sector organizations should adopt the social development model devised and implemented by the Sindh Engro Coal Mining Company (SECMC) in Thar to help the uplift other areas lagging behind in development of the country,” he said while speaking at a ceremony in Tharparkar on Sunday. Accompanied by Ameena Saiyid, head of the Oxofrd University Press, he inaugurated a Thar Foundation-established school in village Abban jo Tarr and a handicrafts center in Thar Coal Block II. The center has been established by Thar Foundation to empower the Thari women economically by removing the middleman factor. Dr Husain lauded Thar Foundation’s social development model.

“We could do away with illiteracy, poverty, and hunger if Pakistan’s private sector adopted the development model in place in Thar,” he said.

He said that mining and power projects were comparatively an easy job when compared with the area’s social and economic uplift.

He acknowledged that social and economic uplift were very well handled by the SECMC in Tharparkar. 

“It was quite a satisfying factor in the entire project,” he observed.